CHULA VISTA, Calif., May 27 /PRNewswire/ -- Rohr Inc. (NYSE: RHR) announced today its third quarter operating results. At the same time, Rohr announced that it was taking charges to income for the third quarter and previous periods totaling $261.9 million after the effect of taxes. The principal factor in the charges was the Company's decision, in light of current industry conditions, to adopt changes in its application of accounting principles relating to long- term programs and contracts. The Company also adopted the provisions of two new Financial Accounting Standards that relate to post- retirement benefits other than pensions, and to income taxes. The charges also include provisions for restructuring and other costs. Lastly, in compliance with SFAS No. 87, the Company recorded a separate charge of $13.3 million to shareholders' equity to reflect the current funding status of its retirement plan.
The charges to income and the effect on shareholders' equity, net of tax benefits, break down as follows:
Millions
Impact of Changes in Applying
Accounting Principles:
through July 31, 1992 $219.7
in Fiscal 1993 22.5
Adoption of SFAS Nos. 106 and 109 4.3
Provisions for Restructuring and
Other Costs 15.4
Total Charges to Income 261.9
Adjustment - Underfunded Pension 13.3
Total Reduction of Equity $275.2
These accounting changes do not affect current cash flow or the Company's ability to meet its contractual obligations to its customers or to make timely payments to its suppliers. Prior to adopting the accounting changes described above, the Company obtained waivers from its lenders to remain in compliance with its financial covenants while obtaining final documentation.
The Company will file its Form 10-Q for the quarterly period ended May 2, 1993, on or before June 4, 1993.
Accounting Changes
In the third quarter of 1993, Rohr changed certain elements of its application of accounting principles relating to long-term programs and contracts, effective as of August 1, 1992. These changes applied more stringent restrictions on the Company's program and contract estimates, which will generally reduce the number of production units and spares used in the calculation of overall profit margins. In addition, certain costs previously carried in inventory for amortization over future deliveries will now be expensed. These costs include certain pre-production costs -- consisting primarily of engineering and tooling expenses in excess of negotiated contractual values -- that are now expensed as identified. In addition, general and administrative costs that were previously capitalized are now expensed as incurred.
James J. Kerley, chairman of Rohr's board of directors, said: "Following a thorough review of its accounting policies, the Company concluded there was a need, particularly in light of the current aerospace environment, to have our accounting principles more closely reflect near-term program economics."
Kerley said while the previous methods of applying the Company's accounting principles were in accordance with generally accepted accounting principles (GAAP), the changed policies are preferable and more conservative. The application of these policies produces program and contract estimates that are based on shorter delivery periods, allowing a better matching of operating cash flows and operating income.
Rohr also adopted, effective August 1, 1992, Statement of Financial Accounting Standards (SFAS) No. 106 - "Employers' Accounting For Post-Retirement Benefits Other Than Pensions." This standard requires companies to accrue the expected cost of providing health care benefits to retired employees and their dependents during the employees' service period. The cumulative effect of this change for the periods through July 31, 1992, net of taxes, was $4.3 million. The effect of this change on the nine months ended May 2, 1993 was not material.
Effective August 1, 1992, the Company also adopted SFAS No. 109 - "Accounting for Income Taxes." The effect of adopting this standard in itself was not material. However, under this standard, the Company recorded a substantial deferred tax asset as a result of its adoption of the other changes in accounting principles and other charges as discussed above. The realization of the deferred tax asset is dependent upon future taxable income.
The cumulative effect of all the accounting changes for the periods through July 31, 1992, net of taxes, was a charge against income of $224.0 million. In accordance with applicable accounting standards, this charge was retroactively recorded on August 1, 1992, the first day of Rohr's 1993 fiscal year. The accounting changes also affect results for the first nine months of the current fiscal year. The effect of these changes on the three months and nine months ended May 2, 1993 was to decrease income, net of taxes, by $4.4 million, and $22.5 million, net of taxes, respectively.
Results of Operations
Sales for the three months and nine months ending May 2, 1993, were $296.8 million and $922.8 million, respectively, as compared with $298.8 million and $930.4 million for the same periods of the previous year. An operating loss of $23.4 million was reported for the quarter ended May 2, 1993, as compared to an operating loss of $31.4 million for the same period in the previous year. Third quarter operating results, before taxes, for fiscal 1993 were negatively affected by $7.1 million due to the changes in accounting principles and by $25.0 million net provisions for restructuring and other costs. In addition, third quarter results were negatively impacted by a reduction in anticipated sales and by increased costs associated with certain programs.
Cash flows from operating activities were $81.1 million for the three months ended May 2, 1993. This was an unusually high amount and included several large payments to Rohr for tooling, engineering changes and similar non-recurring items as well as the payment of certain amounts that had been deferred pending aircraft certification. Cash flows from operating activities for the nine months ended May 2, 1993, were a positive $45.5 million.
Adjusting to the Industry Downturn
While the economies of the United States, Japan and Europe have been expanding slowly this year, airline passenger traffic revenues continue to be disappointing. Following record operating losses, the airlines have placed significant numbers of their existing fleet in temporary storage. The airlines have also rescheduled or canceled a significant number of new aircraft orders and options from the aircraft manufacturing industry. As a result, Rohr's commercial customers have reduced their aircraft production rates and commercial airlines have reduced their spares inventory levels. Due to these reduced schedules, cash flows estimated by the Company at the time it bid on several programs will be significantly delayed and, in some cases, never realized in full. These developments require Rohr to continue to reduce costs in order to match the size of its operations to its current and expected business. The Company has closed its plant in Auburn, Washington, and will close its Hagerstown, Maryland facility, and has deferred completing a new facility in Arkansas. The Company has also reduced planned capital expenditures in fiscal 1993 to approximately $30 million from $40 million and has reduced its workforce from a peak of 12,000 in fiscal 1989 to 7,450 at May 2, 1993. It plans to continue its cost and workforce reduction efforts in the future.
"To address the challenges presented by the rapidly changing aerospace industry, we will maintain our focus on improving efficiencies and reducing costs," said Robert H. Rau, who was elected Rohr's president and chief executive officer in April. "I have faced these down-sizing issues before and I believe the Rohr team will successfully meet these challenges. We will enhance our franchise by reinforcing our relationships and value to our customers."
Financing
The Company's principal financing agreements contain covenants, the most significant of which relate to the Company's tangible net worth, fixed-charge coverage ratio and debt-to-tangible-net-worth ratio. Prior to adopting the accounting changes described above, the Company obtained waivers from its lenders to remain in compliance with its financial covenants while obtaining final documentation.
As part of its strategy to match its capital structure more appropriately to the long-term nature of its program financing requirements, Rohr replaced certain short-term and uncommitted financing arrangements with longer term agreements during the first two quarters of fiscal 1993. Continuing with this strategy, Rohr intends to file, in June, a registration statement with the Securities and Exchange Commission covering a public offering of debt securities. The proceeds will be used primarily to replace certain of the Company's outstanding indebtedness. The increased liquidity obtained by this offering will provide the Company with financial flexibility and capacity to continue to meet customer obligations, to invest in technological and capital improvements and to participate in key new program developments. Existing cash resources and lending agreements are sufficient to meet liquidity requirements should the Company be delayed in completing the new debt offering. The offering will be made only by means of a prospectus.
Backlog
The Company's firm backlog, which includes the sales price of all undelivered units covered by customers' orders for which the Company has production authorization, was approximately $1.4 billion as of May 2, 1993, compared to $1.9 billion at the end of last year's third quarter. Approximately 88 percent of the Company's firm backlog is for commercial and business aircraft equipment. The Company has an additional $2.3 billion in anticipated backlog, which represents existing contracts with options that are expected to be exercised and delivered within seven years based on current market conditions. The anticipated backlog at the end of last year's third quarter was $2.3 billion.
Rohr designs, integrates, manufactures and supports engine nacelle systems and components for commercial, military and business aircraft. The Company also manufactures solid rocket motor casings and nozzles for the Titan IV launch vehicle. Rohr, headquartered in Chula Vista, has facilities in the United States and Europe.
ROHR INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF OPERATIONS
($000 except per share data)
Three Months Ended Nine Months Ended
5/2/93 5/3/92 5/2/93 5/3/92
Sales $296,781 $298,759 $922,785 $930,449
Costs and expenses 320,148 330,185 937,183 911,396
Operating income
(loss) (23,367) (31,426) (14,398) 19,053
Interest expense-
net 12,618 30,459 35,388 53,566
Loss before taxes
on income (35,985) (61,885) (49,786) (34,513)
Taxes (benefit) on
income (13,784) (36,700) (19,070) (26,710)
Net loss before
accounting changes (22,201) (25,185) (30,716) (7,803)
Effect of accounting
changes, net of taxes (223,950)
Net loss (22,201) (25,185) (254,666) (7,803)
Net loss per average
share of common stock:
Before accounting
changes ($1.24) ($1.42) ($1.72) ($0.44)
Effect of
accounting changes (12.52)
Net loss per average
share of common
stock ($1.24) ($1.42) ($14.24) ($0.44)
Total common stock
and equivalents 17,898 17,706 17,889 17,658
Statistics (percent):
Operating income
(loss) to sales (7.9) (10.5) (1.6) 2.1
Effective tax
(benefit) rate (38.3) (59.3) (38.3) (77.4)
Net income (loss)
before changes to
sales (7.5) (8.4) (3.3) (0.8)
Pro forma amounts
assuming the changes
in the application
of accounting
principles for long-
term programs and
contracts are
applied
retroactively:
Net loss (22,201) (40,485) (30,716) (38,203)
Net loss per
average share
of common stock (1.24) (2.29) (1.72) (2.16)
ROHR INC. AND SUBSIDIARIES
CONDENSED BALANCE SHEETS ($000)
5/02/93 7/31/92
ASSETS
Cash and short-term investments $52,581 $21,122
Accounts receivable 158,935 133,153
Inventories - net 436,141 832,977
Prepaid expenses and
other current assets 13,172 21,118
Deferred tax assets 42,278
Total current assets 703,107 1,008,370
Property, Plant and Equipment -
net 241,012 270,283
Investment in Leases and
Other Assets 85,181 85,305
Deferred Tax Assets 57,819
Total $1,087,119 $1,363,958
LIABILITIES AND SHAREHOLDERS'
EQUITY
Trade accounts and other
payables $184,755 $162,638
Other accrued liabilities 45,067 97,441
Short-term debt 20,000
Current portion of
long-term debt 52,334 27,517
Total Current Liabilities 282,156 307,596
Long-Term Deferred Taxes on
Income 43,458
Long-Term Debt 516,831 525,077
Other Obligations 106,205 38,961
Shareholders' Equity 181,927 448,866
Total $1,087,119 $1,363,958
ROHR INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CASH FLOWS ($000)
Increase (Decrease) in Cash and Short-term Investments
Three Months Ended Nine Months Ended
5/2/93 5/3/92 5/2/93 5/3/92
Operating
Activities:
Net loss ($22,201) ($25,185) ($254,666) ($7,803)
Depreciation and
amortization 6,326 7,024 18,974 20,402
Cumulative effect of
accounting change,
net of taxes 223,950
Decrease in
receivables 53,745 37,072 19,218 38,119
Decrease in
inventories 63,156 54,496 43,844 14,594
Other (19,955) (27,732) (5,820) (640)
Net cash provided
by operating
activities 81,071 45,675 45,500 64,672
Investing
Activities:
Proceeds from
sale - leaseback
transactions 52,247
Purchase of
property, plant
and equipment (4,011) (16,755) (22,889) (37,314)
Other, including
investment in
leases 1,248 985 (1,274) 3,491
Net cash provided
by (used in)
investing
activities (2,763) (15,770) 28,084 (33,823)
Financing Activities:
Issuance of 9.33 pct.
senior notes 62,000

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